The answer to this question depends a lot on two things: the type of debt you have and the type of investor you are.
In most situations, paying off high-interest debt — especially credit cards — is almost always the priority. Even before that, it’s wise to have a small amount of savings set aside, just enough to keep you from going further into debt when something unexpected comes up. But when you’re paying 15, 20, or even 30 percent interest, it rarely ever makes financial sense to invest before paying that off.
When it comes to lower-interest debt — like a mortgage or some student loans — the decision becomes more nuanced. That’s where we look at your goals, your risk tolerance, and the emotional weight that debt carries for you.
Some people are comfortable carrying debt and feel motivated by seeing their investments grow. Others feel weighed down by debt and don’t feel progress until it’s gone. Knowing which one drives you is part of the decision.
If you’re confident your investments can reasonably outperform the interest rate on your debt, investing can make financial sense. But high-interest debt almost never makes sense to carry.
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